Touch Investors, illustration of man looking at butterfly

What is a Touch investor?

Touch Investors prefer to take a hands-on approach to their portfolio and build a close relationship with their financial advisor through frequent communication. Somebody with a high score in Touch believes the way they interact with their investments is very important. Their relationship to investing is shaped by a desire to understand performance drivers and derive comfort from knowing they’re making good decisions. They are excited about wins and successes and have an urge to share the good news with folks around them. They may also be a good sounding board for their friends and family.

A low Touch score means they believe there are more important things to do in life than to keep worrying about their investments – so long as they know they are on track to meet their goals. Their relationship to investing is shaped by a desire to outsource so they can focus on other aspects of life.

It’s critical for a financial advisor to understand the different communication styles associated with varying Touch scores to practice the “Platinum Rule” of treating others the way they want to be treated.

Topics in Touch Investing

What is active versus passive investing?
Hands-off vs. Hands-on Investing
The Value of Working with a Financial Advisor
The 4 Personality Styles: Driver, Expressive, Amiable, Analytical

Active vs. Passive Investing 

If you read financial publications or watch financial news channels, you may have heard references to active vs. passive investing. Those terms don’t have anything to do with personality types. Instead, they refer to whether someone is regularly making decisions about which stocks or bonds to own in a portfolio. Historically, most mutual funds have been managed as active investments because portfolio managers and a team of analysts will carefully evaluate securities and select the ones they believe will offer the best future returns.

Exchange traded funds (ETFs) initially emerged as an alternative to mutual funds. Instead of having a team of investors decide which securities to own, most ETFs simply replicate a major market index. For example, you can buy ETFs that will mirror the S&P 500 Index, which is the benchmark for the stocks of large U.S. companies. Given that no managers are deciding which stocks to buy, and the ETF is simply owning the stocks in an index, this approach is considered to be passive investing.

One reason people choose to invest in passive ETFs is that they have lower costs. Because the passively managed ETFs don’t have to pay a team of people to decide which securities to buy, they often charge much lower management fees.

The one disadvantage of passive investing is that your performance will always track a broad market, like U.S. large-company stocks with the S&P 500. When the market is up, you will reap the rewards. When the market is down, you will ride the decline all the way down with a passive fund.

There are variations within ETFs such as “Smart Beta” funds – a blend of active and passive investing. These investment portfolios are rules-based investment strategies that aim to outperform a capitalization-weighted benchmark. Another variation is “Factor” investing, which chooses securities on attributes such as macroeconomic and style factors.

Active funds can be in the form of mutual funds or active ETFs. One potential advantage of active funds is that you may beat the market index’s returns. In an up market, if the active manager picks the best winners, you may realize even greater gains. Similarly, if the active manager makes the right decisions to avoid the worst-performing stocks during a downturn, you may not experience the same losses that the broad market does. Managers who take a fundamental approach look at each company separately to determine it’s long-term potential rather than taking a broad approach to a larger industry or region.

When evaluating whether to go active or passive, you may choose to compare the performance of each type of fund in the market where you want to invest. If you are looking at U.S. small-company stocks, for example, compare the long-term returns of an ETF that mirrors the Russell 2000 index with an actively managed fund focused on U.S. small-company stocks. If the active fund did better, you will also want to make sure it did so at a level that exceeded the extra management fees you have to pay each year for that active management. And remember that past performance is not indicative of future results.

Hands-off vs. Hands-on Investing

When it comes to investing, every person can decide how much they want to be involved. You can have total input on all decisions that will affect your finances, or you can have as little involvement as possible, and let someone else manage your money for you. These two approaches are sometimes called hands-on and hands-off investing.

If you want to be a hands-on investor, you may choose to be a self-directed investor and select your own securities. You do not have to go it entirely alone as a hands-on investor. You could still work with a financial advisor. Rather than turn over all the decisions to that person, a hands-on investor may choose to provide heavy input on how their long-term financial plan is built and be consulted whenever any changes are made.

A hands-off investor takes the opposite approach. They don’t want to be involved in any regular decision-making. In the spirit of another common investment phrase, they simply want investments that will allow them “to set it and forget it.” When working with a financial advisor, they would turn the investment decisions over to their advisor, and perhaps ask for no more than annual check-in meetings where they can see if their long-term investments are on track.

There are pros and cons to each approach. As a hands-on investor, you get to have much more control over your investments. The con is that overseeing your money and analyzing investments can be time-consuming, and you constantly have to try to maintain some expertise on developments in the financial markets and with investment product innovations. As a hands-off investor, you can free yourself from the time burdens and pressure of having to get all these big financial decisions right. The con is that you have to place a strong trust in someone else and make sure you find an advisor or fund manager who is worthy of that trust.

The Value of Working with a Financial Advisor

Today, there are so many opportunities to invest on your own. You can easily and cheaply set up an online account to trade securities, like stocks. Some online services, for a minimal fee, will also provide you with a detailed financial plan you can use to guide all your long-term investments.

The digital age and the arrival of all these financial advice services even have some people questioning the value of working with a financial advisor. Before jumping to that conclusion, you may want to consider all the potential benefits an experienced financial advisor can provide.

Expertise. The investment world has become incredibly complex. A licensed financial advisor receives ongoing training and licensing that helps them develop expertise on the financial markets and the strategies for devising financial plans that will serve their clients’ personal preferences, personalities, and long-term goals.

Experience. When you begin managing your finances on your own, it will likely be the first time you have faced many of these choices. A financial advisor has addressed those challenges for many clients. If you need to set up a college-savings plan for a child, for example, or figure out how to transition financially into retirement, an advisor will probably already have worked with many people in the same circumstances.

A rational check on your emotions. Emotions often overtake investors during turbulent markets. In up markets, investors often want to buy more and in down markets, the natural urge is to sell everything. Giving in to emotions and overreacting to short-term market events, though, can totally disrupt a long-term financial plan. A financial advisor, who has lived through many market swings or at least is fully cognizant of the data, can often be a voice of reason that will help you determine what is the wisest approach to take in response to any short-term market fluctuations.

A sounding board. With a financial advisor, you also have someone to run ideas by. New investment trends emerge all the time. You can even ask your advisor to help you keep up-to-date with them. Your advisor will also serve as the objective party who can let you know if some new trend is worth your investment, or whether they think it’s a fad and you may be better served by staying off whatever that latest bandwagon happens to be. They can also help you stay organized with paperwork, including keeping your beneficiaries up to date, or reevaluating your priorities when a major life event takes place. 

As with many of life’s endeavors, it can help to have an expert alongside you who can offer guidance through all the developments you’ll encounter and all the decisions you’ll have to make along the way.

The 4 Personality Styles: Driver, Expressive, Amiable, Analytical

We are all complex individuals, uniquely different in our own ways. That being said, it is also true that our personalities often lean in certain directions. The Merrill-Reid Personality types, developed in the 1960s by industrial psychologists David Merrill and Roger Reid, can offer some insights on the personality trait that is most dominant for you when you are in social situations. Knowing your personal style will help you as you work with other people, like a financial advisor or family members, on the decisions that will affect your financial future.

The four personality types are:

Analytical. This style prefers to do a lot of investigating and question asking and actively resists making bold, premature statements. Facts, logic and accuracy are important, and “seat-of-the-pants” decisions guided by instincts and emotions are to be avoided. The potential downside to this approach is that it may be difficult to make decisions until it seems all the facts are in, and not every circumstance will allow for that much deliberation before a choice must be made.

Driving. This style likes to move ahead quickly and get things done. The positive is that this is a results-oriented approach that can accomplish a great deal quickly. The one potential drawback is that this approach doesn’t always allow for the careful consideration and inclusion of other people’s thoughts and feelings during that focus on quickly reaching the final goal.

Expressive. This style trusts emotions and lets feelings serve as a guide to the best course of action. Their ability to be spontaneous can lead to moments of serendipitous discovery, when unexpected benefits emerge from the direction taken. People with this dominant style can often rely on charisma, enthusiasm and idealism to enlist others in their cause. Still, this style may also encounter the potential pitfalls of being too impulsive and not considering or fully preparing for a variety of predictable outcomes.

Amiable. This style always considers the impact any course of action will have on the people involved. They are consensus builders who will not try to force their opinions onto a group. They often proceed at a slow, sensible pace, offering support and remaining sensitive to everyone partaking in their joint effort. The one potential drawback of the amiable style is that safe, known spaces may always seem favorable. That can lead amiable types to resist bold, decisive action.

All types have strengths and weaknesses. Recognizing your own personality type can give you the confidence to know when it is worth letting your talents shine to help yourself and others. Knowing yourself can also help you identify when it may be worth examining why you are resisting something, so you can question if going beyond your comfort zone might bring beneficial results. Understanding the different personality types can also help you achieve the best possible results when working with others.